The bond markets took barely an afternoon to deliver their first verdict on Andy Burnham’s premiership: lending to Britain just got more expensive, and the cost of credit for its businesses may not be far behind.
The yield on 10-year gilts rose 0.05 points to 4.97 per cent after the new prime minister used his first speech outside 10 Downing Street to promise a “new economic model”, a move equivalent to a 1 per cent increase in the cost of the UK’s borrowing. The pound was steady, up 0.1 per cent against the dollar at $1.35 in early afternoon trading.
For small business owners, the numbers matter more than the theatre. Gilt yields feed through to the swap rates that price business loans, commercial mortgages and asset finance. A government that pays more to borrow tends, in time, to mean firms that do too.
Burnham was unapologetic about the scale of his ambition. “We will make this moment a circuit breaker for Britain, bringing forward the biggest changes in the last 40 years, a new political model and a new economic model,” he said.
“In the 1980s Britain took some wrong turns. Political power was centralised, economic power privatised, large parts of the country deindustrialised, and they still haven’t recovered.”
The prime minister said he would “build a new economy where we put life’s essentials back under stronger public control to make them affordable to you again, reindustrialising Britain using public procurement to back British industry”.
That last phrase deserves attention from owner-managers. Whitehall already has targets to channel more than £7.4 billion a year of public contracts to smaller firms by 2028, and a prime minister determined to use the state’s buying power to back British industry could, if he follows through, push more of that work towards domestic suppliers.
There is nearer-term news for hard-pressed firms and their customers too. Burnham said he will set out plans this week to give people “breathing space” with the cost of living, with a ten-year vision for the country to follow later this year.
“I can do something to give people some breathing space now, some help with the cost of living, and I will set out some of those measures starting tomorrow, including how we pay for them,” he said.
He also promised to “help more young people into work by changing the education system and giving them more support, more mental health support”, alongside a pledge to build more council homes.
“That is the fair and sustainable way to bring the welfare bill down to meet our fiscal rules and to honour our commitments on defence to our international partners,” he said.
The audience he most needs to win over, however, is a nervous one. Eight in ten SME owners told researchers they feared what a Burnham premiership would mean for their business even before he reached Downing Street, and he inherits an economy that grew by just 0.1 per cent in May and has been described as stagflationary.
Gilt investors, for their part, have latched on to five short words: how we pay for them. Until that question is answered, every pledge in the speech carries a price tag that markets will set, and business borrowers will feel. For SMEs weighing up a loan, a refinancing or a fixed rate, the first days of the Burnham era are an argument for keeping a close eye on the bond market as well as the headlines.
